As we start a New Year, our Head of Hotels and Hospitality Michael Easton looks at the impact on the hospitality sector budget implications which will come in from April of this year:
Changes to hospitality rates relief:
- Businesses under the £110k limit, will see hospitality relief fall from 75% to 40% for the next year (therefore halving the business rates relief from 1 April 2025)
- On the plus side the government has committed to a new permanent hospitality and retail discount for premises from 2026/27, applying to properties with a rateable value under £500k.
Changes to employer National Insurance contributions:
- The main rate of Employer NICS will increase from 13.8% to 15% (an increase of 1.2%), and the threshold at which an employer pays NICs will also fall from £9,100 to £5,000 – meaning more National Insurance will be paid for each employee.
- The Employment Allowance will increase from £5,000 to £10,000 for the 2025/26 tax year, and the £100,000 threshold for eligibility will be removed (benefitting some small businesses).
Changes to minimum wage:
- The National Living Wage will increase to £12.21 per hour for all eligible employees (a 6.7% increase).
- The National Minimum Wage for 18-20 year olds will increase to £10 per hour for all eligible workers (a 16.3% increase).
- The minimum wages for under 18s and apprentices will increase to £7.55 per hour (an 18% increase).
These changes (especially around NICs) will have a disproportionately high impact on the hospitality sector, affecting a large volume of young (and historically exempt) members of the sector workforce and bringing them into tax for the first time.
In short, the implications of the autumn budget will mean additional challenges ahead for the hospitality sector (and the service economy as a whole), as the above changes alone are estimated to cost the hospitality sector approximately £3.4B.
Whilst we have no doubt that the sector will ride out these challenges, given the resilience it continues to exhibit, the longer term impact cannot be ignored as the incentives for new entrants to enter the marketplace are slowly being eroded and medium term stagnation will lead to downward pressure on pricing, even for well run, profitable venues. Only a pivot on government focus for greater support will stop the rot and if so, those who work in the sector will see the benefit of their labours for the first time since 2020/1.
